The Most Important Thing You Must Do Before Signing a Licensing Agreement

One of the biggest mistakes in licensing is not completing due diligence before signing the licensing deal.

due diligence

As a licensee, you are making a substantial investment to time, money and resources to license and commercialize an intellectual property. Your due diligence efforts will help insure your best chance of success with the IP.

Due Diligence is a critical and often overlooked step in evaluating an IP to license. It includes getting information about the IP ownership, rights availability, whether the IP is ready to go to market (i.e. what is it’s commercialization stage)and most importantly, will it be profitable.

Your first step is to find out whether the IP rights are available. You can wind up wasting a lot of time and money if you enter negotiations only to learn the rights are not available or licensed to someone else.

The next step is to do a quick search to verify the is properly registered. For patents and trademarks, you can search any number of the public database such as the USPTO or Google Patents.

If the licensor has other licensees, you’ll want to verify that there are no conflicts with the rights already granted to other licensees. If the rights are non-exclusive, you’ll want to find out if there are other licensees with the same or competing products.

Depending on the type of IP, you will need to determine the strength of the IP. Does it stand out, or is it a short term fad? For example, movies can be very short term IP opportunities and may only have a short lifespan in the market.

It’s also important to evaluate the IP owner’s reputation or stability and how it’s viewed in the marketplace. Are there any licensees whose actions have damaged the image of the IP? For example, sports figures and celebrities are often prone to problems from things they say or do which lessen their standing with the public.

The final step is to verify the commercial viability of the intellectual property. In some cases, such as a technology IP, this can be a substantial effort. An unknown or untested IP will take more time and resources to commmercialize then one that is already in the market. Interest and demand by the consumer or buyers of the IP will determine the potential upside. One example of this is licensing well known brands which are less risky than up and coming brands.

Ending up in a reactive deal because an opportunity presented itself may seem like a good idea at the time. But don’t assume that a licensing agreement will take care of any problems that “pop-up”. Nothing is more draining in both time and money then having to litigate your way out of a licensing agreement. A little research before signing a licensing agreement will go a long way in making sure you form the right licensing partnership.

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4 Key Areas to Research and Qualify your Licensing Partners

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